This week the Republicans declared “Class Warfare” in response to the recently proposed fair tax on the super wealthy named after billionaire Warren Buffet. In doing so have made it quite clear they represent less than 2% of the US population. They are refusing to tax the superrich, those making over $1 Million a year, even at the same levels as the lowest classes of wage earners, or 20%.
Warren Buffet stated it quite clearly, “There’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Few understand what Warren is talking about, so I have outlined a few points for investors in the Traverse City area to consider below.
The Bush era tax cuts did little but make most pay more taxes, as the tax load was shifted through increased taxes at the state and local level. The tax cuts gave what appeared to be a very large sum of money to most, but to fund these tax decreases nearly all federal aid given to the states was cut off. Shortly after the second round of tax cuts in 2003, all 50 states were broke, and forced to increase taxes and cut spending. The rich, that got a much bigger tax cut, had money left over once all of these new taxes or tax increases were added. Since that time, the poor, middle and much of the upper middle class had a negative tax burden added.
Since the tax increases were small, and spread over many different things with most of them hard to see or track, most still believe they are getting a tax break and believe Bush was the one that saved them from high taxes. These taxes were also added to things all pay, like an increased sales tax here in Michigan, so it hit even those below the Poverty level.
Most blame the heads of the state and local governments for increasing taxes or cutting funded programs or jobs that affected them. State and local governments had little choice it was a direct result of the tax savings. Many of the things that were funded at the federal level could not be eliminated, like schools so taxes had to be raised. Yet even those programs that couldn’t be eliminated weren’t immune from cuts and many were made. That was the plan all along, to shift the tax burden to the lower 98%.
When the tax breaks are allowed to expire, and they will eventually, most of the 98% will have more than doubled their tax burden. The 2% will have banked or invested these cuts and continue to enjoy the benefits with increased earnings for long after.
Companies in the US are supposed to be taxed at a 35% rate, but it isn’t likely any pay this much. Many that make billions a year pay no taxes. That includes all of the major oil companies, they haven’t paid a cent in almost 100 years.
But they aren’t alone many companies pay little or no tax every year. Many claimed large paper losses due to unrealized investment losses or Goodwill on decreased stock values during the previous downturn. These paper losses offset billions in actual earnings and instead of paying any taxes on these earnings, they got huge tax refunds.
Tax cuts to the superrich or businesses have historically done little to increase the economy, it actually often stagnates economic growth as they look for more tax cuts or incentives.
The companies in the S&P500 have been hoarding cash, amassing over $2.2 Trillion dollars in cash or cash equivalents since the rebound began (that is not including investments or mergers which are also increasing). Not hiring new employees or reinvesting in their businesses has helped them amass this cash hoard. Doing so has slowed the rate the economy has recovered, but it has also kept new incentives coming aimed at “speeding” the recovery.
About 70% of the GDP is produced through consumer spending. The vast majority of this spending is made by the lower 98% and much of this spending is made on the “necessities of life” including food, clothing, housing and transportation. Lowering the tax burden to those with more money in the bank than most will earn in their lifetimes makes little sense as these tax decreases are not applied where it is needed. The only way these tax cuts would have made sense was if they were tied to major purchases in areas the economy needed help in to claim these tax decreases, and without these purchases there was no tax decrease.
But the rich are winning at a scale that matters more, wages are decreasing. These wage decreases are at least in part the direct result of the Bush era “free trade” signing bonanza. Between 2003 and 2009 during and after the time the bulk of the Bush era free trade agreements went into effect, the constituents of the S&P500 reduced US workforces and increased overseas workforces by over 10 million. This information is not provided in all earnings reports or other company literature, so this job shift is probably much larger.
But to add insult to injury, as part of the terms and conditions for financing set forth in GM’s and Chrysler’s government loans, they were forced to shutter several plants and outsource several thousand jobs overseas, by the government. This was done in the midst of extremely high unemployment and stagnant job growth.
The data shows the rate of increase in wages began to slow as the rate of job exports increased, and during the past two years the average pay of US workers has begun to decrease.
This is simply supply and demand. During high unemployment times, employers can reduce wages and still fill positions with qualified personnel. During periods of lower unemployment levels, there is more competition for this qualified talent and wages increase. Without a shift of over 10 million jobs overseas, unemployment levels would be much lower now and wages would likely still be increasing.
Another factor is that this job shift hit the highest wage brackets of hourly employees the hardest and these jobs were the first to go. But it also hit many of the highest wage brackets of salary employees of the upper middle class too. When a plant closes to go overseas, it displaces most of the workforce. Some salary or hourly employees are given opportunities within the organization at other locations, but these opportunities are often short lived, are made to displace another employee that the company disfavors or to fill a position left vacant due to attrition. Very seldom was a job created for this opportunity.
The initial jobs shift was largely in manufacturing, but has since become a growing part of the service industry too. As a result, the companies in the S&P500 pay more taxes to overseas governments than they do to the US government. This disparity is widened when considering many of these foreign governments charge a lower tax rate, if not continually, for at least a time period when a new plant is opened. In the process it dislocated well over 10 million that used to pay taxes, and has decreased the wages of those that remained working in the US, further reducing the tax base. Yet the super wealthy that benefited the most from these changes, had the largest tax decreases, or paid little or no taxes at all to begin with. How is it we have a budget problem again?
Salaried employees took another hit during the Bush administration. Labor laws were changed that allowed companies to discontinue overtime pay to the salaried employees that used to be covered by the overtime laws. Not all instituted these changes immediately, some have been gradually added, but rest assured the change will eventually affect all. As a direct result, companies have also changed many low paying jobs that have been historically hourly positions to salaried positions that regularly require work weeks in excess of 40 hours, and no longer pay overtime.
Now many of these companies that have amassed huge sums of money overseas are asking for a “tax holiday” to re-domesticate this money tax free. They not only stripped money from the tax base by transferring these jobs overseas and evaded paying US taxes to make this money, but now want to bring it back tax free too.
When the Federal Government raised the cigarette tax to $1.01 per pack, it wasn’t to help reduce the deficit as widely reported it was used to fund the State Children’s Health Programs. Historically this program has been used to fund uncovered children’s health care costs of those at or below the poverty level. This increase in funding allowed the programs in New York and New Jersey to cover these expenses for the wealthy too. Not every state, just New York and New Jersey, two of the states with the highest percentage of super wealthy.
This is just the tip of the iceberg. The list is way longer than I could possibly cover in an article. Warren is right, the rich are not only winning, but they are doing it with great stealth. Most don’t even know there is a war being waged. The wins are camouflaged so well that some still believe they are winning and continue to vote for those that are increasing their losses.
The problem isn’t with just the Republicans or Tea Party fanatics, many of the Democrats are very wealthy too and some are acting upon their own best interests, not of their constituents nor of the nation.
I’m not one of the 2% and know I am losing this battle, so I am investing in those that are winning.
Have a great day trading,
Disclosure: I am currently about 97% invested in stocks in my trading accounts.
This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.